The International Monetary Fund’s director of fiscal affairs Vitor Gasper said that global debt reached a new high in 2017, topping the $182 trillion mark, but also said that India’s debt, in particular, is much less than global debt as a percentage of the world’s gross domestic product (GDP)–a positive economic sign that could benefit the Direxion Daily MSCI India Bull 3x ETF (NYSEArca: INDL).
“So, it is substantially less than the global debt as percentage of world GDP,” Gasper said regarding India’s debt, which is below the average of developed and emerging market economies. “There is a positive relation between the debt to GDP ratio and the level of GDP per capita. If you compare around the world with the best economies or emerging market economies, the level of debt in India is lower.”
Furthermore, its economy is experiencing strong year-over-year growth as it grew “8.2 percent year-on-year in the second quarter of 2018, above 7.7 percent in the previous three months and beating market expectations of 7.6 percent. It is the strongest growth rate since the first quarter of 2016, boosted by household spending, financial, real estate and manufacturing activities,” according to Trading Economics.
Source: tradingeconomics.com
Gasper also cited that although private debt in India has increased the last decade, it has tapered off in recent years.
“If you look at emerging market economies, that includes India, you see that private debt in the last 10 years has increased quite substantially, although in the last two years, since the end of 2015, 2016 and 2017, there is a slowdown in the process of leveraging, but debt is very high and public debt is a very high as well,” Gasper said.
Nonetheless, the IMF director still views India as stable relative to other emerging market economies.
“So, it’s very stable. So, what you do see is that emerging market economies, which is where India is, there’s a very fast buildup in private debt with a slowdown in the last two years, But India is basically steady. So, India is not an emerging market economy where leveraging is progressing fast,” said Gasper.
For investors looking for opportunities in India, INDL seeks daily investment results worth 300% of the daily performance of the MSCI India Index. INDL invests in securities of the index, which is designed to measure the performance of the large- and mid-capitalization segments of the Indian equity market, covering approximately 85% of the Indian equity universe.
With the rupee experiencing its doldrums this year, India could present investors with discounted opportunities that could benefit INDL if the country’s central bank is able to shore up its local currency. Just today, the Reserve Bank of India announced it would inject 120 billion rupees or US $2.1 billion into its financial system through the purchase of government bonds.
INDL is currently up 0.58% as of 2:45 p.m. ET.
High-Yield Debt Exposure to Emerging Markets
While emerging markets have been roiled by ongoing trade wars this year, there are still opportunities abound for investors seeking value and one of those areas is within emerging markets debt through the VanEck Vectors Emerging Markets Local Currency Bond ETF (NYSEArca: EMLC).
The rough year in emerging market is evident in ETFs, such as the Vanguard FTSE Emerging Markets ETF (NYSEArca: VWO)–down 8.91% YTD, iShares Core MSCI Emerging Markets ETF (NYSEArca: IEMG)–down 8.24% YTD and iShares MSCI Emerging Markets ETF (NYSEArca: EEM)–down 8.31% YTD.
However, investors who are hesitant by the red prices in emerging markets ETF should view them as substantial markdowns, especially the U.S. and China settle their trade differences. With respect to value compared to price, many of these ETFs from abroad could present a profitable opportunity for investors, such as those in emerging markets debt in EMLC.
“We’re seeing some pretty significant inflows back into EM local,” William Sokol, ETF Product Manager at VanEck, told ETF Trends. “It’s obviously been a tough year, but for a variety of reasons, we have investors coming back into this space.”
“Local yield are now 7.2%, which is significantly higher than where we started the year,” added Sokol. “I think you look at that in the context of fundamentals and there’s clearly some countries that are in the headlines and some that continue to be like Turkey that are suffering from certain political or economic issues, but overall, fundamentals still are relatively healthy especially compared to past periods where there have been sell-offs in EM.”
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